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Did you eat breakfast this morning? Let’s say you had cereal with sliced bananas
and coffee.
The bananas may have come from Honduras
The coffee may have come from Brazil
The sugar may be from the Phillipines
Without foreign trade, you may have just eaten cereal & milk!
What we buy and sell is based on:Consumers Needs & WantsNeeds—What we must have to survive
(water, shelter)
Wants—What we desire to have, but don’t necessary need for survival (jewelry, ipod)
Three economic questions:What are we going to produce? How? For
Whom?
International BusinessOften referred to as Foreign World Trade
Creating, shipping, and selling goods and services across national borders.
The US conducts trade with over 180 countries
Why trade?
We cannot provide for ourselves all of the things we want, so we have to go outside of our borders.
ImportingThe things we buy from other countries are
called imports.
Cocoa, spices, tea, silk, crude oil, rubber, fish, carpet, dishes, tin, chrome, magnesium, nickel, copper, zinc
Without foreign trade, some of these items would not be available.
Exports…One of every 6 jobs depends on
international trade!
We export…
Agricultural products, plastics, movies, books, chemicals, and medicines to name a few
International Currency
The Rate of exchange is different as is the kind of money
Russia-Ruble, Europe-Euro, Brazil-Real, India-Rupee, Saudia Arabia-Riyal
Large Banks provideCurrency services for businesses and
consumers
The value of a currency in one country compared with the value in another is called the exchange rate.
Barriers to International TradeQuotas—limit on the quantity of a product
that may be imported or exported within a given time
Protect your own supply of goodsTo show disapproval of what another country
is doingTo protect industry from too much
competition
Tariffs…A tax that a government places
on certain imported products.
You buy a bike for $140, but the government puts a 20% tariff ($28) on the imported bike. You will pay $168 plus shipping charges for the bike. Perhaps it would be better to buy a US bicycle.
Tariffs may be set by the item, by the pound, by the gallon
EmbargoesWhen a government stops the export or
import of a product, this is called an embargo.
Protect their own industries
Prevent destructive products from entering their shores such as weapons that may fall into the wrong hands…
Balance of Trade…The difference between a country’s exports
and imports
If a country exports (sells) more than it imports (buys), it has a trade surplus.
If a country imports (buys) more than it exports (sells), it has a trade deficit.
Balancing…A country can have a trade deficit with one
country and a surplus with another.
The United States has a huge trade deficit…
2010…U.S. International Transactions: Second Quarter 2010The deficit on goods and services increased to $131.6 billion
in the second quarter from $114.5 billion in the first. Goods The deficit on goods increased to $169.6 billion in the second quarter from $151.3 billion in the first. Goods exports increased to $316.1 billion from $305.6 billion.. Industrial supplies and materials and capital goods more than accounted for the increase in exports. Within the industrial supplies and materials category, petroleum and products accounted for much of the increase, with metals and nonmetallic products also contributing to the gain. A decrease in foods, feeds, and beverages, primarily soybeans, offset some of the other gains in exports. Goods imports increased to $485.7 billion from $457.0 billion. Most of the increase was accounted for by capital goods, automotive products, and consumer goods. Within capital goods, computers were particularly strong. The increase in automotive products was mostly accounted for by passenger cars.
Multinational companiesThose that do business in several countries
Coca Cola is a multinational company. Coke is sold all over the world.
Advantages of International Trade
Creates jobs, increase in sales
Promotes communication with others
Respect for different nations
Disadvantages of International Trade Competition may drive your own country’s
businesses out of business
People have lost jobs
The electronic, automotive, and textile industries have taken a huge hit due to these products being produced more cheaply outside of the United States
What happens when…The deficit becomes too high?
We no longer have enough jobs for our workers?
We keep importing more than we export?
The American dollar goes down in value?